Receivers Of Shocks Research Articles

Green bonds and traditional and emerging investments: Understanding connectedness during crises

This paper investigates dynamic connectedness between US green bonds and major implied volatility indices from stock, crude oil, gold, exchange rate and cryptocurrency markets through the application of a novel TVP-VAR frequency connectedness approach of Chatziantoniou et al. (2023) for the first time. The specific goal of this paper is to explore how uncertainty from different financial markets could affect the US green bonds during three major events that resulted in substantial financial market instability, such as the US–China trade war, the COVID-19 pandemic, and the Russia–Ukraine conflict. Firstly, there is a relatively low connectedness between green bonds and all implied volatility indices. Secondly, the degree of transmission is notably influenced by such extreme events. Thirdly, the US green bond market is a receiver of each of the analysed stock, oil, and gold markets, while it is a transmitter of exchange rate and cryptocurrency markets. Fourthly, the US green bond functioned as the primary shock transmitter for the cryptocurrency market during the COVID-19 outbreak, but it shifted to being a receiver of shocks during the Russia–Ukraine conflict. Lastly, connectedness between the green bond market and other financial markets is predominantly driven by short-term frequencies. Our results are crucial for understanding the evolution of green bonds, especially during turbulent periods, and assessing green bonds’ classification as safe assets. Such findings also show that black swan events have been deeply disruptive to the green transition, with specific relevance to policymakers and market participants.

Exploring volatility interconnections between AI tokens, AI stocks, and fossil fuel markets: evidence from time and frequency-based connectedness analysis

Energy and artificial intelligence (AI) are two of the top fields of the present time. However, investors of conventional energy assets have yet to consider the rapidly emerging AI-based assets for diversification. Owing to the rise of new categories of assets in the last two decades, which has sparked the interest of global investors to attain the most favorable outcomes, we examine volatility connectedness between AI stocks (MSFT-Microsoft, GOOG-Alphabet, AMZN-Amazon), AI tokens (AGIX-SingularityNET, OCEAN-Ocean Protocol, FET-Fetch.ai), and fossil fuel markets (WTI, BRENT, and GAS-natural gas) over the period from May 6, 2019, to July 8, 2023. We apply a novel three-dimensional framework in which we model time-domain and frequency-domain volatility spillovers at the median-, lower- and upper-quantiles in static as well as dynamic settings to achieve the objectives of this paper. We find the variation in static and dynamic connectedness between markets over time-frequencies and quantiles. Results reveal that AGIX, BRENT, FET, MSFT, and WTI are recipients, whereas AMZN, GAS, GOOG, and OCEAN are transmitters of the spillovers at the median quantile. Furthermore, we demonstrated that the short-term and long-term metrics for dynamic total connectedness might not consistently exhibit the same direction. Moreover, our analysis indicates that the short-term fluctuations predominantly influence the network's overall shock transmission, while the longer-term aspect has the potential to alter the role of a net transmitter or receiver of shocks. These findings provide portfolio managers, regulators, and policymakers with valuable information regarding portfolio adjustments, hedging, and financial stability.

The interconnected carbon, fossil fuels, and clean energy markets: Exploring Europe and China's perspectives on climate change

Carbon allowances represent a crucial financial instrument for mitigating the consequences of global warming and climate change. However, the feedback mechanism for Carbon-Energy- Finance systems introduces complexity due to the incorporation of equity, bond, and non- energy commodity assets. This study examines the volatility dynamics between carbon markets in Europe and China and their interactions with fossil fuel energy and clean energy indices. To measure this connectivity, we use advanced methodologies, such as the Diebold and Yilmaz method, to shed light on the complex relationships between these markets. Our study highlights significant disparities between China and Europe in terms of return spillover. In the short term, our results indicate that the Chinese carbon market acts as a receiver of shocks from other markets, while the European carbon market acts as a transmitter of shocks to various energy sources. In the specific contexts of China and Europe, these results provide valuable insights for policymakers and investors interested in tailoring approaches to sustainable energy transitions and financial stability.

Global uncertainty factors and price connectedness between US electricity and blockchain markets: Findings from an R-square connectedness approach

We investigate the interconnectedness between the US electricity market and cryptocurrency, NFTs, and DeFi markets, while considering the conditioning effect of uncertainty factors. We employ an R2 connectedness approach to analyze the shock transmission mechanism and results reveal significant connectedness among these markets with varying degrees of asymmetry in return spillovers. Notably, the US electricity market acts as a receiver of shocks. Further, global uncertainty factors positively influence interconnectedness. Findings provide valuable insights for policymakers and market participants to manage risks and promote a sustainable and resilient ecosystem between the blockchain and electricity markets.

Spillover effect among carbon bond market, carbon stock market and energy stock market: Evidence from China

In this paper, we employ the time domain dynamic connectedness method of Antonakakis et al. (2020) and the frequency domain dynamic connectedness method of Barunik and Ellington (2020) to explore the complex linkages among Chinese carbon bond market, carbon stock market and energy stock market. We find firstly that the spillover effects among Chinese carbon bond market, carbon stock market and energy stock market are dynamic and mainly transitional. Secondly, carbon stock market and carbon bond market (especially the carbon neutral bond market) play the role of the major net transmitter and receiver of shocks, respectively. And, their roles as net transmitter and receiver of shocks are persistent. Finally, the risks of companies that have achieved effective results in the field of carbon neutrality may bring greater pressure to the energy stock market, but the carbon bond market can alleviate this pressure to a certain extent. Meanwhile, the impact of carbon stock market on energy stock market and the ability of carbon bond market (especially the carbon neutral bond market) to mitigate the risks of the energy stock market is persistent.

Spillovers and connectedness among BRICS stock markets, cryptocurrencies, and uncertainty: Evidence from the quantile vector autoregression network

In this study we advance the understanding of the spillovers and connectedness network among conventional and Islamic BRICS stock markets, cryptos (Bitcoin, Ethereum, Litecoin) and various global uncertainties, using a quantile vector autoregression method and daily data covering the period October 8, 2016, to May 28, 2021. Further, the study uses a network and sensitivity analyses to assess the nexus, examines risk causes, and the transfer paths in these markets under bearish, normal, and bullish markets. The evidence offers major findings. First, the overall static and dynamic connectedness is very high and more intense at extreme events. Second, the network connectedness structure shows that the markets have played both roles: net transmitters and receivers of shocks under several market states. Finally, the sensitivity to quantiles analysis shows switching behavior of net transfer spillovers over the quantiles. This could be beneficial to investors aiming at optimizing hedging strategies. Policymakers should consider carefully the overall network connectedness in the market system and formulate appropriate policies to conceive stock market price sensitivity.

Connectedness among various financial markets classes under Covid-19 pandemic and 2022 Russo-Ukrainian war: evidence from TVP-VAR approach

PurposeThis paper examines the time-varying return connectedness between renewable energy, oil, precious metals, the Gulf Council Cooperation region and the United States stock markets during two successive crises: the pandemic Covid-19 and the 2022 Russo-Ukrainian war. The main objective is to investigate the effect of the Covid-19 pandemic and the Russo-Ukrainian war on the connectedness between the considered stock markets.Design/methodology/approachThis paper uses the time-varying parameter vector autoregression approach, which represents an extension of the Spillover approach (Diebold and Yilmaz, 2009, 2012, 2014), to examine the time-varying connectedness among stock markets.FindingsThis paper reflects the effect of the two crises on the stock markets in terms of shock transmission degree. We find that the United States and renewable energy stock markets are the main net emitters of shocks during the global period and not just during the two considered crises sub-periods. Oil stock market is both an emitter and a receiver of shocks against Gulf Council Cooperation region and United States markets during the full sample period, which may be due to price fluctuation especially during the two crises sub-periods, which suggests that the future is for renewable energy.Originality/valueThis paper examines the effect of the two recent and successive crises, the Covid-19 pandemic and the 2022 Russo-Ukrainian war, on the connectedness among traditional stock markets (the United States and Gulf Council Cooperation region) and commodities stock markets (renewable energy, oil and precious metals).

How does economic policy uncertainty drive time–frequency connectedness across commodity and financial markets?

This study provides novel insight to the prior literature on the time–frequency connectedness across commodity and financial markets while considering the effect of economic policy uncertainty (EPU). We utilize DY and BK methods combined with the rolling window technique to examine how the connectedness varies over time and across frequencies. Subsequently, we establish regime-switching models to evaluate the influence of EPU on the connectedness and provide implications under different economic states. Our empirical results unveil robust short-term information, volatility, or risk transmission among commodity and financial markets, as they are the main contributors and receivers of shocks, especially during the crisis. Moreover, we identify EPU as a remarkable driver of the interactions among these markets in static and switching regimes. Finally, the optimal weight and hedge ratio responses to EPU are regime-dependent and EPU is more economically important in determining short-term investment. Our findings present vital implications that all market participants should consider the EPU level and prevailing economic conditions when selecting hedging strategies.

Dynamic Connectedness between Renewable and Nonrenewable Energy Consumptions, Economic Growth and Carbon Dioxide Emissions in Vietnam: Extension of the TVP-VAR Joint Connected Approach

We employ a time-varying parameter vector autoregression (TVP-VAR) combined with an extended joint connectedness approach to study interlinkages between renewable and nonrenewable energy consumption, economic growth, and CO2 emission by characterizing connectedness of four markets starting from 1985 to 2019. Our results demonstrate that the financial crisis appears to have influences on the system-wide dynamic connectedness, which reaches a peak during 1989. The total directional connectedness suggests that nonrenewable and renewable sources of energy consumption tend to be net recipients of spillover shocks. Throughout the studied period, growth in the economy and CO2 emissions seem to be influential net shock transmitters. Pairwise connectedness reveals that nonrenewable consumption primarily receives spillover effects of economic and environmental shocks. Since the crisis, CO2 emission has been a net receiver of shocks from other variables.

Connectedness of stock markets with gold and oil: New evidence from COVID-19 pandemic

This paper sets out to explore the impact of COVID-19 pandemic on the dynamic connectedness among gold, oil and five leading stock markets by applying a new DCC-GARCH connectedness approach. We find stronger connectedness between these markets during the COVID-19 pandemic than in the pre-pandemic period. We also find that during this pandemic, gold is a receiver of shocks from the five stock markets, whereas the oil is a net transmitter of shocks.

Financial modelling, risk management of energy instruments and the role of cryptocurrencies

This paper empirically investigates whether cryptocurrencies might have a useful role in financial modelling and risk management in the energy markets. To do so, the causal relationship between movements on the energy markets (specifically the price of crude oil) and the value of cryptocurrencies is analysed by drawing on daily data from April 2013 to April 2019. We find that shocks to the US and European crude oil indices are strongly connected to the movements of most cryptocurrencies. Applying a non-parametric statistic, Transferring Entropy (an econophysics technique measuring information flow), we find that some cryptocurrencies (XEM, DOGE, VTC, XLM, USDT, XRP) can be used for hedging and portfolio diversification. Furthermore, the results reveal that the European crude oil index is a source of shocks on the cryptocurrency market while the US oil index appears to be a receiver of shocks.

How Integrated Are Regional Green Equity Markets? Evidence from a Cross-Quantilogram Approach

This paper investigates the integration among sub-sectors within the environmentally friendly stock market and the integration between these sub-sectors and other financial asset classes. Using the recently developed cross-quantilogram framework, we contribute to the literature by quantifying the cross-quantile directional spillovers among regional green equity markets and other financial assets. First, we find that within the green equity market, the U.S. sector is the main transmitter of shocks while the Asian sector is the main receiver of shocks, however, the integration among regional green equity markets dissipates in the long run. Second, we find that the relationship between green equity markets and other financial assets such as energy commodity and conventional stock varies across regions and market conditions. Our results imply that understanding the heterogeneity in the internal and external integration of the green equity market is crucial for the design of successful investment strategies and effective policy incentives to promote environmentally friendly investments.